Peruvian bond yields headed for their biggest two-day rise in six months after the central bank said inflation will ease more slowly than previously thought, fueling speculation it won’t cut interest rates this year to boost growth.
The yield on the nation’s benchmark 7.84 percent sol-denominated bond due August 2020 rose four basis points, or 0.04 percentage point, to 5.51 percent at 2:28 p.m. in Lima, according to prices compiled by Bloomberg. That takes the increase in the last two sessions to nine basis points, the most since the two-day period ending Sept. 22. The security’s price fell 0.31 centimo from March 23 to 115.43 centimos per sol.
Peru’s central bank raised its forecast for 2012 growth in a March 23 report and said inflation won’t slow to the mid-point of its 1 percent to 3 percent target range until next year. It previously saw inflation falling to 2 percent this year. The report suggests the bank may keep its benchmark rate on hold until 2014 as consumer demand and investment improve, said Pedro Tuesta, an economist at 4Cast Inc., in a note to clients today.
Local investors may be selling bonds “if they see there’s now zero chance of a cut in interest rates,” said Estefany Castillo, an economist at Scotiabank Peru in Lima.
Central bank policy makers will probably keep their benchmark rate at 4.25 percent for most of this year, though they may have space to cut rates if needed in the second half as inflation eases, Scotiabank said in a March 12 report.
The country’s annual inflation rate held at 4.2 percent last month after reaching a two-year high of 4.74 percent in December.
The sol was little changed at 2.67 per U.S. dollar, from 2.6690 on March 23, according to Deutsche Bank AG’s local unit.
The central bank didn’t buy or sell dollars in the spot market today.